Before You Plan, Look at the Big Picture

Most of us typically think about financial planning with a specific goal or two in mind. You want to plan for your kids to go to college or you want to ensure that you are on track for retirement. But before you address your main goals, I suggest you take a step back and look at the big picture.

First uncover why your goals are so important to you. When I work with clients, I like to ask: Why is money important to you? Sometimes clients look at me like I have four heads. But ultimately their answers reveal the values that are driving their goals.

So why is money important to you? When you answer this question, don’t settle on the first answer. Ask why again. For example, perhaps money is important to you because you want financial freedom. Why do you want financial freedom? You want financial freedom so you can spend more time with your family and help others rather than worry about helping yourself. Keep asking why until you can go no further. Doing so should help reveal what you truly value. Once you know what you value, you can create financial goals that align with your values.

Next, take a moment to find out where you stand financially. Grab a sheet of paper and draw a line down the middle. On the left side, list all of the assets you have in your life. For example, your house, bank accounts, 401k, investment accounts, and car could all be assets. Then, on the right side, list all of the debts you have; student loans, mortgage, credit cards, car payments, etc. After that, tally both sides so you have a total for assets and a total for debts. Assets – debts = your net worth.

This quick exercise can be quite revealing. Perhaps your debts are larger than you expected. Or maybe your net worth is higher than you expected. The key takeaway isn’t figuring out your net worth, it is the clarity you get from this exercise to know where you stand today. At Stone Steps, I utilize financial planning software that allows my clients and I to monitor their net worth and cash flow real time. Check it out in the video below.

Once you know where you stand, you can start to plan for the goals that you have in mind if you are financially healthy enough to do so. If you have heaping credit card debt, I would recommend you focus on paying down your debt and creating a budget before you start saving for Johnny’s future tuition. If you are financially fit then plan away. While planning, refer back to your values to make sure that your plan is designed to reflect your goals and values.

There are many moving parts to your financial life. If this exercise reveals questions that you are not comfortable answering on your own you may want to enlist the help of a professional. Feel free to reach out to me here or find other CFPs at XY Planning Network’s Find An Advisor or at CFP’s Let’s Make a Plan.